Article
How to address tax implications for name, image, likeness (NIL) deals and collectives
Nov. 14, 2023 · Authored by Wendy Campos, Claire Kidd
The June 2021 Supreme Court decision in NCAA v. Alston, 141 S. Ct. 2141 (2021) allows student athletes to profit from various uses of their name, image, and likeness (NIL). This ruling created an entirely new market schools and students are learning to navigate.
As a result, NIL collectives were created as separate entities from colleges and universities to help facilitate deals for student athletes. Many NIL collectives applied for and received tax exemption under IRC Section 501(c)(3) or were created under an existing 501(c)(3) entity, creating a broader question of if they served an exempt purpose.
With the rapid rise in student athlete NIL deals and NIL collectives, as well as a recent IRS memorandum, colleges and universities need to be aware of the associated tax implications. Below are NIL-related tax areas schools should consider for themselves and their students.
IRS advice on NIL collectives
In General Legal Advice Memorandum AM 2023-004 from June 2023, the IRS deemed that many NIL collectives don’t further an exempt purpose to qualify for 501(c)(3) status, arguing that:
- The benefit to private interests is qualitatively and quantitatively more than incidental.
- The primary purpose of making NIL deals serves the private interests of student athletes, not the general public.
- Private benefit of student athletes isn’t a byproduct of an NIL, but a fundamental part of an NIL collective’s activities since compensating student athletes for their NIL is core to the collective’s existence.
- Benefits of NIL collectives are directed to a limited noncharitable class, and student-athletes aren’t a recognized charitable class and aren’t selected based on need.
- When an organization serves public and private interests, private benefit must be incidental to the overriding public interest.
Thus, the IRS concluded that private benefit isn’t incidental to the NIL’s activities, resulting in a substantial nonexempt purpose that precludes tax exemption under 501(c)(3). This has led to some NIL collectives closing due to expected IRS scrutiny.
Tax implications for colleges and universities
Protect tax exempt status and mission
Related sections
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.